Trial lawyers kill jobs by suing new firms

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President Barack Obama announced last week that he has created a new President’s Council on Jobs and Competitiveness, to be headed by General Electric chairman and CEO Jeffrey Immelt.

Obama has asked the new council, which replaces the old White House Economic Recovery Advisory Board headed by former Federal Reserve chairman Paul Volcker, “to focus its work on finding new ways to encourage the private sector to hire and invest in American competitiveness.”

About the only good news here is that Obama at least concedes his policies during his first two years in office failed to create jobs, as unemployment continues bouncing around between 9 and 10 percent.

For new ideas on job creation, Obama should take a look at a just-released study from the Securities Class Action Clearinghouse, which is a joint effort by Cornerstone Research and the Stanford University Law School. The clearinghouse does objective research concerning securities litigation filed by class-action trial lawyers in the plaintiffs bar.

Such research is vital because for decades, the plaintiffs bar has cost the American economy billions of dollars by filing thousands of class-action lawsuits against everyone from Fortune 500 corporations to neighborhood dry cleaners.

Often the purpose of these suits is to reap out-of-court settlements that generate lavish lawyers fees on the basis of tenuous allegations of wrongdoing. Thousands of good jobs have been destroyed and legions of productive businesses closed by such litigation.

The latest Clearinghouse study shows a slight increase in the number of securities class-action suits filed in 2010, compared to 2009, going from 168 to 176. Those numbers may seem small, but any one of the suits can lead to settlements that cost defendant firms hundreds of millions of dollars just to make the trial lawyers go away.

Another piece of data buried in the study points to a new way Obama can encourage job creation: “Firms with recent initial public offerings are most at risk to be targeted by securities class actions,” according to an article about the study in the National Law Journal. “In fact, companies are most likely to be sued in their second year of public trading. … Exposure to litigation typically decreases over time, though a newly public company has a nearly 34 percent chance of being sued in its first 11 years.”

In other words, the plaintiffs bar is most likely to sue the very corporations most likely to be the source of significant new job creation just when they are seeking expansion capital through public offerings.

Obama could at least convene a White House meeting for a JFK-like “jawboning session” with leaders of the American Association for Justice, the chief plaintiffs bar trade and lobbying group. Here’s why he won’t: An Examiner analysis of FEC data found that employees of the top 110 plaintiffs firms contributed more than $7.2 million to federal candidates in 2010, 97 percent of whom were Democrats.